🔗 Share this article

“Exchange, exchange.” Under the scorching heat, dozens of money changers are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a nation long used to holding the US dollar.

“The optimal moment for purchasing is currently,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economic experts from all backgrounds expect a devaluation of the national currency after the voting is over. The president has imposed a cap on the currency to control triple-digit inflation and currently it remains artificially high and reserves are exhausted, causing the national economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular policies to reclaim control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep budget reductions – had earned praise from international lenders for helping to control price rises in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be slain, no matter the cost.

But financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and a series of graft allegations. Solely massive financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to enact public demand despite elite opposition.

The Reform leader has so far committed few policies to paper except for a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he lately abandoned a promise for significant tax cuts. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

Labour aims this stance will enable it to portray Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “The party is funded by affluent backers demanding lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict here between rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be a tenth less in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, though, is despite their economic costs, these leaders are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.